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Business Studies · Oct / Nov 2022 · Paper 22 · Question 1

0450

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  • 1(a)[8]

    Explain two reasons why the owners of CC might want to expand the business. Award 1 mark for each relevant reason (max 2). Award a maximum of 3 additional marks for each explanation of why the owners of CC might want to expand the business – one of which must be applied to this context. Relevant answers might include:

    To possibly gain higher profits for the owners – as expansion will lead to increased sales in new markets – leading to increased revenue – CC shareholders may want higher dividends paid / increase in share price
    To lower average/unit costs – gain from economies of scale – such as bulk buying of cocoa beans – a discount could be received for bulk purchases
    To gain a larger share of the market – increase in the proportion of total sales in the market may increase revenue – as the home market is saturated so limited potential for growth in this home market
    To gain more status and prestige for the owners – may be listed on stock exchanges in other countries
    To spread risk / diversify markets For example: To possibly gain higher profits for the owners (1)

    because expansion is likely to increase revenue, (1)

    as CC will sell its products in more markets (1). The higher profits should allow the shareholders of CC to be paid higher dividends (app). Application could include: chocolate bars;

    shareholders of CC;

    low wage costs in country Z;

    CC plan to take over NM in country Z;

    500 NM employees;

    4000 CC employees;

    public limited company;

    imports most of its raw materials;

    cocoa beans;

    no trade restrictions in its export markets;

    takeover will cost $35 million.

  • 1(b)[12]

    Consider the opportunities and threats of globalisation for CC. Which is likely to have the greatest effect on CC? Justify your answer. Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both opportunities and threats. Well-justified conclusion. Candidates discussing both opportunities and threats in detail, in context and with a well-justified conclusion including why the alternative was rejected should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of opportunities or threats. Judgement with some justification / some evaluation of choice made. Candidates discussing opportunities and threats in detail and applying them to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the opportunities and threats with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the opportunities and threats in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Opportunities

    Start selling exports of products to other countries – increases the number of markets operating in – increases revenue
    May become cheaper to produce chocolates than in country X – as it may start operating in other countries that may have lower costs – e.g. lower wage costs in country Z
    Easier to import products such as cocoa beans into the home country – no trade restrictions may lead to lower unit costs in country X too Threats
    Increasing imports of chocolates into the home market from multinational companies – increases competition – sales from abroad may reduce market share at home
    Increased investment from multinational companies in the home market – setting up factories making chocolate for the home market – may also lead to increased competition at home
    Employees may leave to go and work for the multinational companies setting up in the home market – increased wages and more opportunities may be attractive – higher labour turnover for CC – increased costs of recruitment and training for CC
    Lack of knowledge of new markets, competition and local tastes – may make it more difficult to successfully export into global markets Conclusion
    There are more opportunities for CC from globalisation as it may benefit from lower unit costs for its chocolates if it produces in country Z, making it more competitive than many other businesses both in the home country and in foreign markets. Therefore, the opportunities to expand and increase revenue are greater than the threats of increased competition.
    As CC is relatively new to becoming a multinational company it may find it difficult to compete with other multinational businesses located in country X / importing chocolate into country X. Hence the threats from multinational businesses may be greater than the opportunities to sell chocolates in other countries for CC, possibly leading to lower market share for CC in the home market.
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